FMA sues Booster over wine investments

The Financial Markets Authority (FMA) says it has launched civil procedings against Booster Investment Managment (BMIL) and five named individuals alleging law breaches in related party dealings in investments in wine businesses.

Wednesday, June 12th 2024, 1:43PM 2 Comments

by Jenny Ruth

Booster says it “strongly disputes” the allegations and that it will “defend its position vigorously.”

The FMA says it alleges 75 causes of action against the company and named individuals, saying those people “used their positions improperly as directors or senior managers in circumstances where conflicts of interest and related party benefits were not properly managed.”

Each contravention has a maximum penalty of $600,000 for BMI and $200,000 for an individual but the FMA says, if the court agrees, a court-directed inquiry would determine what harm or loss any investors suffered as a result of the breaches.

The FMA says the breaches occurred between 2017 and 2022 arising from investments the company made into the related limited partnership, Booster Tahi (Tahi), which in turn invested into a series of domestic wine businesses that were later amalgamated into the Booster Wine Group (BWG).

The directors are Allan Yeo and Paul Foley, former director Brendon Doyle and the senior managers are David Beattie and Nicholas Craven.

Craven is currently chief investment officer and Beattie stepped down from that role in 2018.

Booster “denies any wrongdoing and stands by its robust investment practices which have delivered good returns for customers.”

FMA's head of enforcement, Margot Gatland, says the alleged breaches are serious and the civil procedings “are the proportionate response” to important provisions of the Financial Markets Conduct Act, “including fiduciary duties of managers and related party transactions.”

The FMA says it continues to work with BMIL in parallel with the legal action “and is focused on current and future compliance and investor outcomes” while Booster says it is cooperating with the FMA.

The FMA says case involves retail investors in three Booster Schemes, the Booster KiwiSaver Scheme, Booster Super Scheme and Booster Investment Scheme.

Fund exposures

“Booster has advised that as at May 31, 2024, 24 of the 61 retail funds Booster manages have exposure to BWG, including six KiwiSaver Funds. Those funds' exposure ranges from 0.77% to 3.83%,” the regulator says.

“Failures to follow required processes meant that the relevant transactions were made in breach of the prohibition against related party transactions,” the FMA says.

Of the 75 causes of action, 14 relate to Booster, 17 relate to all the named individuals, one relates to Yeo and Doyle only, and another 18 relate to all the individual and concern the general prohibition on transactions giving a related party benefit.

“The FMA alleges the relevant Tahi investments were made without any consideration by the BIML investment committee,” it says.

The specific circumstances of some investments “suggest that it was not in the best interests of scheme participants” and these circumstances include concerns of BWG's lenders about its underperformance that were known to BMIL.

Specific investment was not made in accordance with Tahi's investment criteria, which BMIL was required to monitor, the FMA says.

The size and timing of particular requests for funding occurred where there were material changes in the underlying business “without any reassessment of the appropriateness of the ongoing investment,” the FMA says.

“Booster rejects the FMA’s underlying contention that investments into BWG were not in the best interest of Booster’s investors,” the company says.

“Booster stands behind its decision to invest in the wine sector via BWG,” it says.

“Tahi’s wine investments have grown annual production capacity from 700,000 litres to nine million litres and Tahi has received over $13 million of distributions from these businesses. The investments required to achieve this were entirely consistent with Booster’s strategy to grow a geographically diverse and scaled wine business.”

Since inception in 2017, Tahi's reported returns were 6.9% annually on average after fees and before tax through to May 31 this year, the company says.

Tags: FMA